Werewolf Therapeutics, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited results; dollar amounts below are in millions unless noted. Werewolf is a clinical-stage biotechnology company developing immune-stimulating cancer therapies. It reported no product sales.
Financial results and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Collaboration revenue | $5.0 | — | $9.1 | — |
| Research and development expense | $13.1 | $9.8 | $37.9 | $21.9 |
| General and administrative expense | $4.4 | $4.0 | $14.1 | $10.3 |
| Operating loss | $(12.5) | $(13.8) | $(42.9) | $(32.2) |
| Net loss | $(11.9) | $(13.8) | $(41.9) | $(32.1) |
| Net loss per share, basic and diluted | $(0.40) | $(0.51) | $(1.48) | $(11.89) |
- Collaboration revenue arose from the Jazz Pharmaceuticals agreement; it included amortization of the $15.0 million upfront payment and reimbursement for research services. No milestones or royalties had been received by September 30.
- Cash and cash equivalents were $140.5 million at September 30, down from $157.5 million at December 31, 2021. Restricted cash was $1.2 million. Current assets were $151.6 million and current liabilities $27.8 million.
- For the nine months, operating cash use was $28.7 million, investing cash use $3.1 million, and financing provided $14.7 million, principally from the at-the-market stock offering. Cash, cash equivalents and restricted cash decreased $17.2 million.
- There were no term-loan borrowings outstanding at September 30. The facility provides up to $40 million, subject to conditions; the filing reported $20 million available to draw as of September 30. The facility is secured by personal property, excluding intellectual property.
- Accumulated deficit was $294.8 million. The company has no approved products and no product-sale revenue; operating margins and profitability are therefore not meaningful measures at this stage.
Changes versus the prior comparable period
- Revenue began in 2022 following the Jazz collaboration. Q3 net loss narrowed to $11.9 million from $13.8 million; for the first nine months, net loss widened to $41.9 million from $32.1 million as operating expenses grew faster than collaboration revenue.
- Nine-month R&D expense increased $16.0 million, mainly from manufacturing, personnel, contract research, and facility costs. G&A expense increased $3.8 million, mainly from personnel and public-company insurance costs.
- Operating cash use improved by $1.5 million year over year, partly reflecting collaboration-related deferred revenue and higher noncash stock compensation. Investing outflows rose as Werewolf equipped its new headquarters.
- Werewolf raised $14.4 million net under its ATM offering through September 30, selling approximately 3.05 million shares at an average price of $4.99. This increased share count and diluted existing holders.
Outlook, developments and risks
- Management expected cash and cash equivalents, anticipated collaboration revenue, and access to the term facility to fund operations through at least Q2 2024. The filing cautions that this estimate depends on assumptions and that additional funding will be needed to complete development.
- WTX-124 began a Phase 1/1b trial in Q3 as monotherapy and with Merck’s KEYTRUDA; initial data were anticipated in Q4 2023. The FDA cleared the WTX-330 IND, and management planned to initiate a Phase 1 trial. These are forward-looking expectations, not assured outcomes.
- The Jazz agreement licenses WTX-613, now called JZP898, to Jazz. Werewolf is eligible for up to $520 million in development and regulatory milestones, up to $740 million in sales-based milestones, and tiered mid-single-digit royalties. These amounts are contingent and were not included in the recognized transaction price.
- The PWB facility requires Werewolf to raise at least $50 million in gross proceeds by September 30, 2023 through equity, strategic partnerships, or a similar transaction. After receiving those proceeds, it must maintain at least $20 million of unrestricted cash in PWB accounts. Failure to meet covenants could trigger default and acceleration.
- Key risks include clinical and regulatory uncertainty, manufacturing scale-up and third-party supply dependence, patient enrollment, competition, intellectual-property protection, and the need for further capital. COVID-19 could also disrupt development or operations.
- A new laboratory and office lease commenced in May 2022 and runs to 2030; estimated remaining base rent was approximately $18.5 million. The company subleased its former space to Crossbow Therapeutics, an entity with ties to MPM Capital directors; sublease income was approximately $0.5 million through September.
- Management reported effective disclosure controls as of September 30, 2022 and no material change in internal control over financial reporting during the quarter. Prior material weaknesses were reported as remediated.
Important facts for investors to verify
- Whether WTX-124 and WTX-330 clinical timelines, enrollment, safety, and data expectations remain on track.
- Actual cash burn and whether the stated Q2 2024 runway remains supportable as trials and manufacturing advance.
- Progress toward the PWB covenant requiring at least $50 million of gross proceeds by September 30, 2023, and the consequences if it is not met.
- How much of the Jazz milestone and royalty opportunity becomes achievable, and the timing and costs of remaining collaboration work.
- Future financing needs, potential dilution, and any drawdown or changes to the terms of the PWB facility.